Insurers (Insurance companies or carriers)
manufacture and sell insurance coverage by way of insurance policies or contracts.
Insurance Agencies
independent organizations that recruit, contract with, and support sales agents and producers.
Insurance Agents/Producers
licensed individuals representing an insurance company when transacting insurance.
Insured
person or entity that buys insurance for protection from loss of life, health, property or liability.
The National Association of Insurance Commissioners (NAIC)
consists of all State and territorial insurance commissioners or regulators. ...provides resources, research, legislative and regulatory recommendations and interpretations for state insurance regulators. The association promotes uniformity among states a
The Federal Insurance Office (FIO)
established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. This office monitors the insurance industry and identifies issues and gaps in the state regulation of insurers. It also monitors access to affordable insurance by traditionally
Stock Insurance Company
Owned by stockholders or shareholders. Issue non-participating policies
Mutual Insurance Company
Owned by policyholders aka members. Directed by the Board of directors. Policyholders receive non-taxable dividends as a return of unused premium when declared by the directors.
Dividends are not guaranteed
typically issue Participating policies
Reciprocal Insurance Company
group-owned insurer whose main activity is risk sharing. They are unincorporated, and formed by individuals, firms, and business corporations that exchange insurance on one another. Each member is known as a subscriber. Each subscriber assumes a part of t
Lloyds of London
not an insurance company, but consists of groups of underwriters called Syndicates, each of which specializes in insuring a particular type of risk. Members are individually liable for each risk they assume.
Fraternal Benefits Society
Usually organized on a non-profit basis, are primarily social organizations that engage in charitable and benevolent activities that provide life and health insurance to their members. Membership typically consists of members of a given faith, lodge, orde
Risk Retention Groups
are group-owned insurers that primarily assume and spread the liability related risks of their members...owned by their policyholders and licensed in at least one state. However, they may insure members of the group in other states.
The Group must be made
Self-insurer
to assume the financial risk one's self. This is generally an option only for large companies who may even reinsure for risks above certain maximum limits.
Residual Market
A private coverage source of last resort for businesses and individuals who have been rejected by voluntary market insurers.
Risk Sharing Plan
Insurers agree to apportion among themselves those risks that are unable to obtain insurance through normal channels.
Reinsurance Company
assumes all or a portion of a risk for a primary or ceding insurance company; reinsurance transfers risk among insurance companies. The insurer originating the application is the primary or ceding company. The insurer sharing in the risk is the reinsuranc
Domestic Insurer
An insurer organized under the laws of this state, whether or not it is admitted to do business in this state.
Foreign Insurer
An insurer not organized under the laws of this state, but in one of the other states or jurisdictions within the United States, whether or not it is admitted to do business in the state or jurisdiction.
Alien Insurer
An insurer organized under the laws of any jurisdiction outside of the United States, whether or not it is admitted to do business in this state.
Admitted (Authorized) Insurer
authorized by this State's Commissioner of Insurance to do business in this State. It has received a Certificate of Authority to do business in this State.
Non-admitted (Unauthorized) Insurer
either applied for authorization to do business in this state and was declined or they have not applied. They are not authorized to transact insurance in this state.
Surplus (Excess) Lines Insurance
Finds coverage when the kind or amount of insurance cannot be obtained from admitted insurers. It may not be utilized solely to receive lower cost coverage than would be available from an admitted carrier.
Executives
Oversee the operation of the business
Actuarial Department
Gather and interpret statistical information used in rate making...determines the probability of loss and sets premium rates
Underwriting Department
Responsible for the selection of risks (persons and property to insure) and rating that determines actual policy premium
Marketing/Sales Department
Responsible for advertising and selling
Claims Department
Assists the policyholder in the event of a loss
Independent Agency
An agent or agency that enters into agency agreements with more than one insurer. It may represent an unlimited number of insurers.
Insurer (Principal)
the source of authority from which the producer must abide; and it is responsible for all acts of a producer, but only when the producer is acting within the scope of his/her authority. However, a producer may be personally liable when his/her actions exc
Producer
A person or agency appointed by an insurance company to represent it and to present policies on its behalf. A producer possesses three types of authority
Expressed
Authority that is written into the producer's agency contract. An example would be the producers binding authority if written in the contract.
Implied
Authority the public assumes the producer has. An example would be the business activities of providing quotes,completing applications and accepting premiums on behalf of the insurer.
Apparent
Authority created when the producer exceeds the authority expressed in the agency contract. This occurs when the insurer does nothing to counter the public impression that such authority exists. An example would be the producer's acceptance of premiums on
Broker
A licensed individual who negotiates insurance contracts with insurers, on behalf of the applicant...represents the applicant or insured's interests, not the insurer, and thus does not have legal authority to bind the insurer.
Fair Credit Reporting Act
protects consumer privacy, while ensuring data collected is confidential, accurate, relevant and used for a proper and specific purpose. It also protects the public from overly intrusive information collection practices.
Financial Anti-Terrorism Act (The USA Patriot Act)
imposes record keeping and government reporting requirements on banks, financial institutions and non-financial businesses for specific financial transactions and customer financial records
Merchant Marine Act of 1920 (the Jones Act)
allows insured seamen to make claims for injuries suffered during the course of employment. It also regulates maritime commerce in U.S. waters, transportation of cargo, and the rights of seamen.
Motor Carrier Regulatory and Modernization Act (The Motor Carrier Act of 1980)
Deregulated the trucking industry by prohibiting any entity from interfering with a motor carrier's right to set its own rates.
Gramm-Leach-Bliley Act of 1999
allow the merger of banks, securities companies, and insurance companies. It also established the Financial Privacy Rule and Safeguards Rule for the protection of consumers' privacy. The Financial Privacy rule requires "financial institutions," which incl
Risk
A condition where the chance, likelihood, probability or potential for a loss exists; Uncertainty concerning a loss
Speculative Risk
Situations where there is a chance or possibility for loss, no loss or gain (i.e., gambling)
Pure Risk
Situations where there is no chance for gain, only loss. Only type of risk that can be insured (For instance, the possibility of damage to property caused by a fire or other natural disaster; or the possibility of financial loss as a result of premature d
Loss
Reduction, decrease, or disappearance of value. The basis of a claim for damages under the terms of an insurance policy.
Peril
The cause of a loss
Hazard
A specific condition that increases the probability, likelihood, or severity of a loss from a peril.
Physical Hazard
A physical condition that increases the probability of loss; use, condition, or occupancy of property.
Example: Flammable material stored near a furnace.
Moral Hazard
Dishonest tendencies that increase the probability of a loss; certain characteristics and behaviors of people.
Example: An insured burns down his/her own house to collect the insurance payout.
Morale Hazard
Attitude that increases the probability of a loss.
Example: Indifference or carelessness of leaving one's house or vehicle unlocked.
Loss Exposure
The condition of being at risk for a loss. Purely by existing, property and people are at risk for loss.
Adverse Selection
An imbalance created when risks that are more prone to losses than the average (standard) risk are the only risks seeking insurance within a specific marketplace. For example, only those living in earthquake-prone areas seek to buy earthquake insurance. H
Managing Risk
the practice of analyzing exposures that create risk and designing programs to minimize the possibility of a loss.
Sharing
Investments of a large number of people may be pooled by use of a corporation or partnership
Transfer
Transferring the risk from one party to another, such as from a consumer to an insurance company
Avoidance
Elimination of the risk
Avoid the activity that gives rise to the chance of loss
Reduction
Minimizing the chance of loss, but not preventing the risk. For example, sprinkler systems, burglar alarms, pollution controls and safety guards on machinery
Retention
Assume the responsibility for loss
Law of Large Numbers
As the number of units in a group increases, the more likely it is to predict a particular outcome.
Principle of Indemnity
Insured is restored to the same financial or economic condition that existed prior to the loss.
Insured should not profit from an insurance transaction.
Contract Law
Pertains to the formation and enforcement of contracts.
Tort Law
civil wrongs; they're not crimes or breaches of contract. They result in injuries or harm that constitute the basis of a claim by a third party.
Contract of Utmost Good Faith
Both parties bargain in good faith when forming and entering into the contract. The two parties rely upon the statements and promises of the other and assume no attempt to conceal or deceive has been made.
Estoppel
Prevents the denial of a fact, if the fact was admitted to be true previously.
Waiver
Voluntary surrender of a known right, claim or privilege
Competent Parties
All parties to a contract; Insurer and Insured must have legal capacity to enter into a contract.
Legal Purpose
All parties to a contract must enter it for a legal purpose; public policy cannot be violated by a legal contract.
Agreement
One party must make and communicate an offer to the other party and the second party must accept that offer.
Offer
The offer for entering an insurance contract is the application submitted by the applicant.
Acceptance
takes place when the insurance company agrees to issue insurance. A counteroffer by the insurance company is not acceptance until the applicant accepts the counteroffer.
Consideration
Something of value is exchanged; the exchange of an act for a promise.
Applicant-premium payment
Insurer-promise to pay for covered losses
Contract of Adhesion
One party writes the contract, without input from the other party; one party (insurer) prepares the contract and presents it to the other party (applicant) on a "take-it-or-leave-it" basis, without negotiation
Aleatory
The exchange of value is unequal.
Unilateral Contract
Only one party is legally bound to the contractual obligations after the premium is paid to the insurer. Only the insurer makes a promise of future performance, and only the insurer can be charged with breach of contract.
Conditional Contract
Both parties must perform certain duties and follow rules of conduct to make the contract enforceable. The insurer must pay claims if the insured has complied with all the policy's terms and conditions.
Reasonable Expectations Doctrine
What a reasonable and prudent policy owner would expect; the reasonable expectations of policyowners are honored by the Courts although the strict terms of the policy may not support these expectations.
Representations
Statements made by the applicant on the application that are believed to be true to the best of the knowledge and belief of the applicant; may be withdrawn prior to policy issuance.
Misrepresentations
A false statement contained in the application; usually does not void coverage or the policy.
Concealment
The willful holding back or secretion of material facts pertinent to the issuance of insurance (or a claim), even if the applicant or insured was not about the subject...results in denial of coverage and may void the policy.
Fraud
Intentional deception of the truth in order to induce another to part with something of value or to surrender a legal right.
Warranties
Statements in the application or stipulations in the policy that are guaranteed true in all respects. If later discovered untrue or breached (past, present or future), coverage (and sometimes the contract) is voided.
Underwriter
protects the insurer against adverse selection and risks that are more likely than average to suffer losses. The underwriter's primary responsibility is the selection of risks to be insured. The underwriter also determines the classification, and premium
Rate
The dollar amount charged for a particular unit of insurance, such as $5 per $1,000 of insurance
Premium
The total cost for the amount of insurance purchased
For instance, $50,000 of coverage = $5 rate x 50 (per $1,000 of insurance) for a $250 premium
Adequate Premium
must be charged for the risk based on the same factors used in evaluating the risk...considered inadequate when they do not cover projected losses and expenses; rates must not be excessive or unfairly discriminatory.
File and Use
Rates must be filed with the state insurance regulatory authority (Department of Insurance) and may be used as soon as they are filed.
Prior Approval
Insurers cannot use rates until approved by the Department of Insurance, or until a specific time period has expired after the filing.
Open Competition
A state relies on competition between insurers to produce fair and adequate rates.
Loss Ratio
Determined by dividing the sum of Paid Losses + Loss Reserves by Total Earned Premiums.